Technological efficiency

CFA Level I
#1

Labor Capital A 1 1000 B 10 15 C 100 10 D 1000 1 Which one of the firms is technological efficient? How can you determine technological efficiency? Alex.

#2

If I remember correctly, technologically efficient means using the lowest amount of capital while economically efficient means having the lowest cost. I believe the answer would be C, which is both Technologically efficient and Economically efficient. Can someone else confirm?

#3

I think the answer is B. A technologically efficient firm employs the least amount of resources (both labor and capital, seen as units of production) to produce the same item. A 1 +1000 =1001 B 10 + 15 = 25 C 100 + 10 = 110 D 1000 + 1 = 1001 Economically efficiency is at lowest overall (capital and labor) cost. If you would be given a cost per unit of labor, and a cost per unit of capital, you would multiply each alternative with the respective costs, and whichever is the lowest cost, that would be the economically efficient alternative.

#4

That what I was thinking. But in Schweser they say that also both A and D are technological efficient because compared to B, a uses less labor (but more capital) and D uses less capital (but more labor). What do you think about this?

#5

Ah yes, that’s right. I was mistaken about the definition for technologically efficient.

#6

What was Schweser’s answer Alex? I’m going with B A quick Google: Technological efficiency occurs when it is not possible to increase output without increasing inputs. Economic efficiency occurs when the cost of producing a given output is as low as possible. and: A production process is considered technologically efficient if, given the output being produced, the fewest resources possible are used to produce that output. So if the question stated that the output is the same under the 4 scenarios, then B is the most technologically efficient.

#7

I would say none of above is tech inefficient. Schweser Text: RM 5000 5 ALM 50 50 WSM 50 500 HCM 5 5000 they say that WSM is inefficient (uses same labor as ALM but uses more capital) and all other are efficient.